One moment delicate from the point of view socioeconomic sees the challenges to be faced in the coming months multiply. All this obviously reverberates on the choices to be made with a view to investing in the financial markets. To analyze the issue in detail is an analysis by Michele Morra, Portfolio Manager of Moneyfarm.
War in Ukrainecrisis energy, growth slowed down, inflation in continuous rise and fall of the Draghi government are the main ingredients of this beginning of the second half of the year in Italy. On 25 September, a vote will be taken to elect a new government. To better understand the future, let’s start by analyzing the challenges that our country will have to face and by mapping its economic situation.
Il Pil Italian in 2022 it will grow as well as in 2023. According to the latest Istat data on preliminary estimates, in the second quarter of the year the Italian economy recorded a growth of 1% in economic terms and of 4.6% in trend terms. Given that it marks an expansion phase of the GDP for the sixth consecutive quarter. The growth acquired for 2022 is equal to 3.4%, although it has been constantly revised downwards since March 2022, in line with that of other European countries. The economic and financial situation, combined with the political crisis, brings with it a series of risks for our country.
The first element of worry it is linked to the economic situation of Italy. The political crisis comes at an uncertain economic moment. At the moment the growth estimates are positive for both 2022 and 2023, but it should not be forgotten that the specter of recession hovers over the whole of the EU (and therefore also Italy). The second element is financial risk, measured by widening spreads. Whenever financial risk increases in the Eurozone, and globally, Italy pays more and more in terms of the yield differential with German Bunds.
Despite the ratings of the share Italian seem less expensive than those of the European and global indices, it is necessary to consider how the FTSE MIB is a generally pro-cyclical index and therefore more subject to phases of uncertainty such as the one we are experiencing. This cyclical nature derives from both country risk and sector exposure, which is highly concentrated in the energy, automotive and banking sectors. Bank equities may also suffer from strains stemming from widening spreads caused by political uncertainty, monetary tightening and increased likelihood of default on corporate loans and bonds. Given the conditions of global uncertainty, it would be appropriate to diversify the equity component of the portfolio with a global exposure.
From the point of view bond, political uncertainty may increase the short-term volatility of Italian bond spreads, although situations such as those seen in May 2018 (with spreads increased by 200 basis points) are less likely. It should also be remembered that the bonds of peripheral European countries, in particular Italian ones, generally have a higher systemic risk and contribute to portfolio risk in conditions of global tension. The implementation of the TPI (Transmission Protection Instrument) by the ECB could mitigate the volatility of spreads, but there are still numerous unknowns to be cleared, uncertainty evaluated negatively by the markets. The current rate of BTPs, around 2.9%, may contribute to the long-term return of the portfolio, but it does not seem sufficient to justify a significant over-exposure to Italian government bonds.